The Securities and Exchange Commission (SEC) Enforcement Action against Coinbase
The Securities and Exchange Commission (SEC) will soon bring enforcement action against Coinbase (COIN) and this action is likely to mirror those that the regulator brought against rival crypto exchanges Bittrex and Kraken, Berenberg said in a research report on Monday.
Berenberg’s Coverage and Price Target
The bank initiated coverage of the stock with a hold rating and a price target of $55. On Monday, Coinbase shares closed 6% higher at $60.77.
SEC’s Focus on Coinbase’s Revenue Sources
Berenberg estimates that at least 37% of the $736 million of Coinbase’s first-quarter net revenue came from the following sources:
- Transaction fees and spreads from trading crypto tokens other than bitcoin (BTC)
- Fees from its staking services
“At a minimum, these revenue sources likely would be targeted by the SEC in the enforcement action that we expect the commission to file soon,” analyst Mark Palmer wrote, adding that some of Coinbase’s other revenue streams, such as interest income from USD Coin (USDC) and custody, may also “get caught up in the SEC’s crypto-industry dragnet in the near future.”
Challenges in Pivoting Away from the U.S.
Successfully pivoting away from the U.S. would be a tall order for the crypto exchange, as about 86% of net revenue that Coinbase generated in the 12 months ended March 31 came from its U.S. operations, the note said.
Riskiness of Shorting Coinbase Shares
Shorting Coinbase shares is too risky a trade, Berenberg said, especially as around 23% of its free float is already sold short. Shorting is a way of betting that a price will decline. An investor borrows a security and sells it in the hope that the price will drop. They then repurchase the security and return it to the lender. The borrower can then pocket the difference if they are right or fork out the difference if wrong.
Citi’s Rating and Price Target Adjustment
Wall Street giant Citi cut its rating on Coinbase to neutral from buy earlier this month and slashed its price target for the crypto exchange to $65 from $80, also citing regulatory uncertainty.
Ecosystem
Research
News Network
About